A consumer proposal allows a person settle all their unsecured debts with their creditors for a fraction of what they owe. Often, settlements are for a third of the total debt owed and payment terms can extend to 60 months. It’s common to see a $30,000 debt with monthly payments of $600 or more to service, become a monthly payment of less than $200 to eliminate the debt through a proposal. It’s no surprise that consumer proposals have replaced bankruptcy as the most common choice for eliminating debts.
What happens when you file a proposal?
First, you must meet with a licensed insolvency trustee, who will assess your finances and walk you through your options. If you choose to file a consumer proposal, only the trustee can file a it on your behalf as a consumer proposal is a formal filing under the Bankruptcy and Insolvency Act. As soon as you choose a consumer proposal, the trustee will register your proposal with the federal government to provide you legal protection from your creditors with a stay of proceedings.
You will then work with your trustee to prepare the necessary documents for your proposal. You’ll need to provide information about your income, assets, and debts so that the trustee can create a proposal tailored to your financial situation. You must include all your unsecured debts, including joint debts, as a consumer proposal is designed to offer a fair and reasonable settlement to all your creditors. You cannot exclude any unsecured debts.
What happens when your proposal is presented to your creditors?
Your creditors have 45 days from the date you filed to review your proposal. Within that period, your creditors must submit a claim to your trustee proving the amount you owe and whether they vote in favour or against your offer. As every dollar owed is equal to one vote, you need a majority (50% or more) of votes in favour of your proposal. At the end of the 45 days, your trustee will count the votes.
After your trustee tallies the votes, three things can happen: your proposal is accepted, your proposal is rejected (rarely happens), or your creditors make a counteroffer asking for more money. If there are enough votes in favour of a counteroffer, your trustee will negotiate with your creditors to come to an agreement that works for you and the creditors.
What happens after your creditors accept your proposal?
You will make your proposal payments based on the agreed terms. Your trustee will collect the funds you pay, deposit them into a trust account, and periodically distribute the funds to your creditors. You can pay off your proposal anytime you want; repayment terms are open and no interest accrues on the proposal balance. The trustee’s fees are paid out of the trust account from the accumulated payments. There are no additional fees in a proposal other than the negotiated payment to creditors.
What happens when you complete your proposal?
You’ll receive a certificate of completion, and the balance of the debt that was owed is legally discharged. In addition, your trustee will send a report to the government informing them that the proposal has been completed.
The government then sends a notice to the credit reporting agencies that you have completed your proposal. You’ll then contact Equifax and Transunion to get a credit report and verify that all the information is accurate. The record of your proposal will purge from your credit report three years after you have completed it.
Many people worry about the impact of a consumer proposal on their credit report. In truth, overwhelming debt is a major stumbling block to rebuilding your credit and a proposal is a great way to eliminate that debt so you can begin the process of repairing your credit right away.
As you can see, the process is simple, efficient, and effective.
If you are dealing with too much debt and don’t know what to do, call a licensed insolvency trustee. They will be able to help you create a plan to become debt free.